A Study of Business Process Reengineering

by Kevin Lam

Abstract

This article introduces the Business Process Re-engineering, based on extensive references to the book "Reengineering the Corporation" by Hammer and Champy. It will draw out some questions about the absolute benefits of reengineering. At the end, the enabling role of information technology will be discussed.

CONTENTS:

From the end World War II to nowadays, the market structure has changed tremendously. With trade barrier falling, competition intensifies by oversee competitors. The market is driven by customers because of excess suppliers. Customers take charge and demand products and services that are designed for their unique need. As the needs and tastes of the customers change constantly, the nature of change has also changed; it has become both pervasive and persistent. Under the of notion of the division of labour principle that divides process into small and clearly defined tasks, classical business structures are no longer suitable in a world where competition, customers and change demand flexibility and quick response. A good example to show this is order-fulfilment. It starts when a customer places an order and ends when the goods are delivered. The process typically involves a dozen or so steps that are performed by different people in different departments. Clearly, there are no customer service and no flexibility to respond to special requests. No-one is responsible for the whole process and can tell a customer when the order will arrive. Furthermore, the order passing across different departments makes the process error-prone and also delays progress at every hand-off. There are still many further problems. In particular, people working in different departments look inward and upward toward their boss and department, rather than outward toward their customers. The notion of business process re-engineering addresses the problems of the way we should work and the hierarchical structure of organisations.

The term 'reengineering' was first introduced in 1990 in a Harvard Business Review article: Reengineering Work: Don't Automate Obliterate. The article's author was Michael Hammer, a former Computer Science professor at the Massachusetts Institute of Technology. Hammer then went on to develop the concept further in a book: Reengineering the Corporation, written jointly with James Champy. They provided the following definition:

Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed.

This definition comprises four keywords: fundamental, radical, dramatic and processes.

Keyword: Fundamental

Understanding the fundamental operations of business is the first step prior to reengineering. Business people must ask the most basic questions about their companies and how they operate: Why do we do what we do? and why do we do it the way we do? Asking these basic questions lead people to understand the fundamental operations and to think why the old rules and assumptions exist. Often, these rules and assumptions are inappropriate and obsolete.

Keyword: Radical

Radical redesign means disregarding all existing structures and procedures, and inventing completely new ways of accomplishing work. Reengineering is about business reinvention, begins with no assumptions and takes nothing for granted.

Keyword: Dramatic

Reengineering is not about making marginal improvements or modification but about achieving dramatic improvements in performance. There are three kinds of companies that undertake reengineering in general. First are companies that find themselves in deep trouble. They have no choice. Second are companies that foresee themselves in trouble because of changing economic environment. Third are companies that are in the peak conditions. They see reengineering as a chance to further their lead over their competitors.

Keyword: Processes

Process is the most important concept in reengineering. In classic business structure, organisation are divided into departments, and process is separated into simplest tasks distributing across the departments. The preceding order-fulfilment example shows that the fragmented tasks - receiving the order form, picking the goods from the warehouses and so forth - are delayed by the artificial departmental boundaries. This type of task-based thinking needs to shift to process-based thinking in order to gain efficiency. The following example is taken from Hammer and Champy to illustrate the characteristics of reengineering - fundamental, radical, dramatic, and especially process.

IBM Credit Corporation is in the business of financing the computers, software, and services that the IBM Corporation sells. The IBM Credit's operation comprises of five steps as follows:

(1) When an IBM field sales representative called in with a request for financing, one of the operators in the central office wrote down the request on a piece of paper.

(2) The request was then dispatched to the credit department where a specialist checked the potential borrower's creditworthiness, wrote the result on the piece of paper and dispatched to the next link in the chain, which was the business practices department.

(3) The business practices department was in charge of modifying the standard loan covenant in response to customer request. The special terms to the request form would be attached to the request if necessary.

(4) Next, the request went to the price department where a pricer determined the appropriate interest rate to charge the customer.

(5) Finally, the administration department turned all this information into quote letter that could be delivered to the field sales representative.

This entire process consumed six days on average. From the sales representative's point of view, this turnaround was too long that the customer could be seduced by another computer vendor. Furthermore, no-one would tell where the request was and when it could be done.

To improve this process, IBM Credit tried several fixes. They decided, for instance, to install a control desk, so they could answer the sale representative's question about the status of the request. That is, instead of forwarding the request to the next step in the chain, each department would return the request to the control desk where an administrator logged the completion of each step before sending out the request again. This fix did indeed solve the problem, however, at the expense of adding more time to the turnaround.

Eventually, two senior managers at IBM Credit took a request and walked themselves through all five steps. They found that performing the actual work took in total only ninety minutes. Clearly, the problem did not lie in the tasks and the people performing them, but in the structure of the process itself.

In the end, IBM Credit replaced its specialists - the credit checkers, pricers and so on - with generalists. Now, a generalist processes the entire request from beginning to end. i.e. No handoffs.

How could one generalist replace four specialists? The old process design was, in fact, found on a deeply held(but deeply hidden) assumptions: that every bid request was unique and difficult to process, thereby requiring the intervention of four highly trained specialists. In fact, this assumption was false; most requests were simple and straightforward: finding a credit rating in a database, plugging numbers into a standard model, pulling clauses from a file. These tasks fall well within the capability of a single individual when he or she is supported by an easy-to-use computer system. IBM Credit therefore developed a new, sophisticated computer to support the generalists. In most situations, the system provides guidance and data to generalists. In really tough situations, he or she can get help from a small pool of real specialists who are assigned to work in the same team.

The new turnaround becomes four hours instead of six days. The company achieved a dramatic performance breakthrough by making a radical change to the process - i.e. the definition of reengineering. IBM Credit did not ask, "how do we improve the calculation of a financing quote? How do we enhance credit checking?" It asked instead, "How do we improve the entire credit issuance process?" Moreover, in making its radical change, IBM Credit shattered the assumption that every requests needed specialists to perform.

The preceding example appears simple and attractive. However, the more closely we look at it, the more questions about the benefits of reengineering arise. The arguments are as follows:

(1) What are the underlying costs for the implementation of the radical change?

People need intensive training for their new skills and their styles - the ways in which they think and behave - and their attitudes - what they believe is important about their work.

(2) What are the implications of the radical change to the organisation, especially the human issues?

Organisations are communities of people and cannot treat as machines. People may resist the change and fear losing their jobs. Inspirations and cultures may therefore destroy during reengineering. Furthermore, reengineering requires people to take more responsibilities and to learn and change constantly. These may contradict the majority people who seek for stability for their lives.

(3) Even company provides intensive training, can people change their styles?

People who are used to think the purpose of their work is to perform the same task over and over again, may feel uncomfortable to change the new styles that first concern is creating value for the customer and taking responsibility for the performance of an entire process. They just cannot work in this way.

Information technology (IT) plays a crucial role in business reengineering and is an essential enabler. However, most people misuse the technology. They look at the technology through the lens of their existing tasks. i.e. they only computerise the old existing tasks. Consider the case in IBM Credit. It might have tried to digitalize the request application and to send it to different departments by a computer network. Such computerisation would have accelerated the time that required to move pieces of paper from one department to another, but it also would have increased the queuing time in each departments. Hence, it would have done nothing to the overall process. The structure of the old process was still unchanged. In contrast, the company attained more than 90% improvement through reengineering.

State of the art information technology allows to break conventional rules/assumptions of processes. These rules were designed when the processes were created. Therefore, the rules may be no longer valid nowadays. As the preceding example has been showed, IBM Credit used the sophisticated computer system to break the assumption that every request has to be examined by different specialists.

IT should not be involved in redesign process. Redesigning process is like programming. When solving a problem, we first outline and design the solution at the top level, then implement it by a suitable language, e.g. C or Prolog. The language itself should never be constrained the design. It is the same idea that a specific IT should not be constrained the redesign in reengineering. After the redesign, we then should seek for the best technology to implement it. Similarly, past investments in IT should not be allowed to constrain the redesign. Reengineering is about to reinvent processes. IT is just a tool.

The reengineering profoundly changes all aspects of business and people. Part of the organisation is easy to change by reinventing a way to work. However, the other part, people, is very difficult to change. In particular, it requires not only jobs and skills change but also people's styles - the ways in which they think and behave - and their attitudes - what they believe is important about their work. These are indispensable factors to determine whether reengineering succeeds or not. Leaders must help people to cope with these changes.